Overview of a Chapter 7 Bankruptcy Case
A chapter 7 case begins with the debtor filing a petition for relief with the bankruptcy court, along with other documents, including schedules which list all of the debtors assets and liabilities, and all creditors. The filing of this petition "automatically stays" (stops) most collection actions against the debtor or the debtor's property. 11 U.S.C. § 362. Within days after the case is filed, the Office of the U.S. Trustee will appoint a chapter 7 trustee to administer the case and the court will schedule a meeting of creditors.
Between 20 and 60 days after the petition is filed, the trustee conducts a hearing under 11 U.S.C. § 341(a), also known as a 341(a) meeting, meeting of creditors, or first meeting. Bankruptcy judges are not in attendance at this meeting. During the meeting, the trustee puts the debtor under oath, and asks questions of the debtor. Creditors may also appear and ask questions. The debtor must attend the meeting and answer questions regarding the debtor's financial affairs and property.
The filing of a bankruptcy creates an "estate." The estate technically becomes the temporary legal owner of all the debtor's property. The chapter 7 trustee is the trustee for this estate. Accordingly, the debtor cannot sell or otherwise exercise control over any property of that estate until the trustee has abandoned the property, the case is closed, or there is a court order allowing the debtor to do so.
If all the debtor's assets are exempt (protected under state or federal law) or subject to valid liens, the trustee will normally determine that there are no assets available for liquidation or distribution to creditors, and will file a "no asset" report with the court. Approximately 90% of chapter 7 cases involving individual debtors are no asset cases. Asset cases, those in which there may be funds available for liquidation to creditors, are more involved than no asset cases and take longer for the trustee to administer.
In most cases, the discharge is issued no earlier than 60 days after the meeting of creditors. A discharge is the order which releases individual debtors from personal liability for most debts and prevents creditors from attempting to collect those debts in the future. Not all debts are discharged in a chapter 7 bankruptcy. In addition, the trustee can ask the court to revoke a discharge in appropriate circumstances. Because a chapter 7 discharge is subject to many exceptions, debtors should consult a lawyer to determine which debts have been or will be discharged.
If the case is a "no asset" case, the court generally closes the case approximately 45 days after the discharge is entered, unless there is ongoing litigation or some other matter which holds the case open. If the case is an asset case, the case may be open for years before it is ready to be closed.